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Geely Auto Alert

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Geely Auto Alert Deutsche Bank Markets Research Rating Company Date 23 March 2015 Hold Geely Auto Alert Company Update Asia China Reuters Bloomberg Exchange Ticker Price at 23 Mar 2015 (HKD) 3.87 Automobiles & 0175.HK 175 HK HKG 0175 Price target - 12mth (HKD) 3.35 Components ADR Ticker ISIN 52-week range (HKD) 3.91 - 2.44 GELYY US36847Q1031 HANG SENG INDEX 24,375 Hong Kong NDR takeaways Vincent Ha, CFA Fei Sun, CFA Research Analyst Research Associate We hosted Geely's NDR lunch in Hong Kong on 23 March. The following are (+852) 2203 6247 (+852) 2203 6130 the key topics for discussion: [email protected] [email protected] - Management attributed the 46% YoY FY14 net profit decline to 1) sales network restructuring, which led to slump in domestic sales and 2) Stock data depreciation of Russia rubles and subsequent FX loss. Geely is currently Market cap (HKDm) 34,062 mitigating its FX risk by slowing down sales and raising prices in Russia. Market cap (USDm) 4,391 Moreover, management commented that Russia is the company’s only export market that suffered from FX loss and Geely settles sales in USD terms in other Shares outstanding (m) 8,801.4 overseas markets. Major shareholders Zhejiang Geely - Despite the weak sales in FY14, with the launch of new models (Xindihao and Hldg (45%) New Vision) in 4Q14, domestic sales momentum has been improving over the Free float (%) 57 past few months, according to the management. In addition, the company’s Avg daily value traded 17.8 retails sales reached record level with dealer inventory level at about one (USDm) month vs. a normal level of about two months. Source: Deutsche Bank - Management expects Xindihao sales to remain strong at least until this summer, based on current order backlog. During 2H15E and early FY16E, the Key data company will launch 3 new SUV models, all built on the FE platform, which FYE 12/31 2014A 2015E 2016E Xindihao is based on. Sales (CNYm) 21,738 30,222 34,202 - Geely’s 1.9ppt YoY FY14 gross profit margin compression was due to the Net Profit 1,430.6 2,963.1 3,275.9 typically lower initial margins of new products such as Xindihao and the New (CNYm) Vision. Management expects Xindihao’s margin to improve to a level similar to DB EPS (CNY) 0.24 0.33 0.37 EC7 in FY15E with lower procurement cost and higher volume. PER (x) 10.2 9.2 8.4 - The GC9 mid-size sedan, built on Geely’s KC platform, will be launched in Yield (net) (%) 0.8 1.3 1.5 April. Geely is confident in this model (with positive feedback from pre-sale), Source: Deutsche Bank which is designed by its Design Chief Peter Horbury (ex-Volvo’s design team lead), and believes the local brand mid-size sedan segment will benefit from upgrade demand. - The compact passenger vehicle product based on CMA platform will be launched in late FY16. The platform is co-developed with Volvo Car and Geely believes it will be able to compete with JV brands considering Volvo’s advanced technology. Deutsche Bank view – FY15E recovery in sight; maintaining Hold We think that Geely is on track to achieve a better product mix with higher volume contribution from high-margin models, thus driving the earnings growth in FY15E and beyond. In addition, we expect the technology tie-up with Volvo and the consequent new product roll-out will make the company more competitive vs. local peers and JV brands in China. Nevertheless, we think that the aforementioned positives are well reflected in the stock's valuation, and hence we maintain Hold. Key upside risks include a stronger-than-expected reception for its new models. Key downside risks include a weak reception for its new models and export disappointments. ________________________________________________________________________________________________________________ Deutsche Bank AG/Hong Kong The views expressed above accurately reflect the personal views of the authors about the subject companies and its(their) securities. The authors have not and will not receive any compensation for providing a specific recommendation or view. Deutsche Bank does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. FOR OTHER IMPORTANT DISCLOSURES PLEASE VISIT http://gm.db.com/ger/disclosure/Disclosure.eqsr?ricCode=0175.HK MCI (P) 148/04/2014. .
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